Price Cap Coalition Provides Updated Guidance in Compliance and Enforcement Alert
Washington, D.C. (February 9, 2024) - On February 1, 2024, the Price Cap Coalition (comprising the G7 countries, European Union, and Australia) released an Oil Price Cap (OPC) Compliance and Enforcement Alert, which provides an overview of important OPC considerations and reporting guidelines for suspected OPC violations. The Alert follows earlier guidance from the Price Cap Coalition, U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), and other international organizations (see our previous alert on OPC guidance), and provides key recommendations for those involved in the trade of Russian oil and oil products to improve compliance with — and avoid evasion of — the OPC.
The updated OPC Alert first outlines methods used by bad actors to evade the OPC and related recommendations for industry stakeholders, including:
Falsified documentation and attestations
- Falsified documents may disguise the price paid for Russian oil and oil products, as well as vessel origin, goods, destination, and other important details necessary to ensure compliance with the OPC.
- Coalition Recommendations: “appropriate and enhanced due diligence” through institutionalized sanctions compliance programs, including Know Your Customer and Know your Customer’s Customer procedures. Additionally, industry stakeholders should undertake document assessment and reassessment for invoices, contracts, and receipts, comparing such documents against alternative information sources to ensure accuracy. Such assessments should be used to build risk profiles of vessels and counterparties.
Opaque shipping and ancillary costs
- OPC evaders may manipulate, bundle, or fail to itemize shipping and ancillary costs to hide transactions involving the purchase of Russian oil and oil products above the price cap.
- Coalition Recommendations: “appropriate and enhanced due diligence” as described above. Further, industry stakeholders should be on the lookout for unreasonable or opaque shipping costs, and should review previous guidelines regarding the attestation requirements (see our previous alert on OPC safe harbor guidance).
Third country supply chain intermediaries and complex and irregular corporate structures
- Entities may attempt to evade the OPC by using third country intermediaries and complex corporate structures, including the use of shell companies, multiple ownership and management levels, and frequent changes in structure.
- Coalition Recommendations: “appropriate and enhanced due diligence” as described above. Further, industry stakeholders should be wary of companies that were recently formed, use opaque funding sources, or rapidly and inordinately purchase vessels to trade in Russian oil and oil products.
- To hide affiliation with Russian entities, OPC evaders may use false flags, change flags on multiple occasions (“flag hopping”), register previously Russian-registered flags under a different registry, or flag with registries known to employ insufficient due diligence on registering vehicles.
- Coalition Recommendations: industry stakeholders should consider consulting the International Chamber of Shipping’s Flag State Performance Table, or similar sources such as flagging registry marine notices, to inform sanctions risk assessments, in combination with the enhanced due diligence recommendations above.
- OPC evaders may utilize the “shadow” fleet— older, anonymously owned vessels that may rely on unknown, untested, or fraudulent insurance or avoid industry standard classification societies — to transport oil priced above the cap.
- Coalition Recommendations: industry stakeholders should consider requiring continuous and appropriate maritime insurance coverage through legitimate insurers and ensuring that counterparties have received classification from a member society of the International Association of Classification Societies (IACS).
- Illicit actors may disguise the destination, origin, or recipients of cargo through indirect routing, unscheduled detours, or transit of cargo through third countries. Further, such actors may manipulate or spoof the vessel Automatic Identification System (AIS) or use ship-to-ship transfers (STS) to evade detection from relevant authorities and conceal the origin, nature, and destination of cargo.
- Coalition Recommendations: although a vessel may disable AIS or use STS for legitimate purposes (such as avoiding piracy or providing flexibility for cargo owners), industry stakeholders should investigate signs and reports of AIS manipulation prior to entering into new contracts and while engaging in ongoing business. Such stakeholders may consider incorporating contractual language that AIS manipulation inconsistent with the International Convention for the Safety of Life at Sea is possible grounds for investigation and cancellation of service provision.
In addition to the above considerations and recommendations, the Alert provides instructions for reporting suspected OPC breaches for each member of the Price Cap Coalition.
Lewis Brisbois’ experienced attorneys are actively advising clients as they navigate the ocean of rapidly developing regulatory risks related to international sanctions. For more information, please contact the authors or editors of this alert and visit our Ukraine Conflict Response Practice page for additional alerts.
George Leahy, Associate
Rafael X. Zahralddin, Partner
Andrew Pidgirsky, Partner and Chair of Ukraine Conflict Response Practice